ARTICLE
17 April 2024

How To 'B' A Socially And Environmentally Conscious Business: B Corp Certification For Canadian Corporations

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Aird & Berlis LLP

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B Corp Certification provides a method to Canadian corporations looking to engage with environmental, social and governance ("ESG") initiatives.
Canada Corporate/Commercial Law
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B Corp Certification provides a method to Canadian corporations looking to engage with environmental, social and governance ("ESG") initiatives.

What Is B Corp Certification?

B Corp Certification is a designation created and administered by B Lab, an international non-profit organization established in 2006. B Corp Certification is available to for-profit companies with high standards of social and environmental performance, accountability and transparency.

B Corp Certification signals to consumers and investors alike that a business is committed to using its profits to create a lasting positive impact for a broad group of stakeholders beyond shareholders – such as employees, communities and the environment. It involves including a legal requirement to ensure B Corps remain legally accountable to those stakeholders.

In order to achieve B Corp Certification, a business must meet the highest standard in three areas:

  1. Social and Environmental Performance: B Corps must demonstrate a high social and environmental performance by achieving a B Impact Assessment score of 80 or above (as discussed below) and passing B Lab's risk review. Multinational corporations must also meet certain additional baseline standards.
  2. Accountability: B Corps must change their corporate governance structure to make a legal commitment of accountability to all stakeholders, not just shareholders.
  3. Transparency: B Corps must exhibit transparency by allowing information about their company's performance measured against B Lab's standards to be publicly available on their B Corp profile on B Lab's website.

Directors of Canadian corporations have a duty to act in the best interests of the corporation.1 This duty is owed exclusively to the corporation, and not to any particular stakeholder. However, case law has established that, in carrying out their fiduciary duty to the corporation, directors may consider the interests of a range of various stakeholders – including shareholders, employees, creditors, consumers, governments and the environment.2 How those interests are considered is left to the business judgement of the directors.

B Corp Certification effectively elevates this permissive common law and statutory requirement that directors consider the interests of various stakeholders from a "may" to a "must" by placing a positive legal obligation on directors to be accountable to all stakeholders – a model referred to as stakeholder governance. While this model of corporate governance fits within the legal framework of Canadian corporate law, it represents a fundamentally different governance philosophy than a shareholder-centred model.

Obtaining B Corp Certification may therefore be a suitable method for certain for-profit companies in Canada to legally commit to ESG initiatives by clearly communicating their advancement of a broader definition of stakeholder considerations.

Becoming a B Corp

While the certification process varies depending on a corporation's jurisdiction of formation, size and complexity, achieving B Corp Certification in Canada generally involves two milestone steps: (1) completing the B Impact Assessment to establish that the company's business demonstrates the requisite high social and environmental performance and (2) amending the corporation's articles to establish a positive legal obligation for accountability to additional stakeholders.

(1) B Impact Assessment

The B Impact Assessment evaluates a company's practices across five categories: governance, workers, community, the environment and customers. The assessment includes a range of questions, including those addressing management, the sharing of financial information with employees, workers compensation and suppliers' environmental policies, amongst others.

The following are examples of questions that may appear in the B Impact Assessment:

  • Governance: What portion of your management is evaluated, in writing, on their performance with regard to corporate, social and environmental targets?
  • Workers: What percentage of the company is owned by full-time workers (excluding founders/executives)?
  • Community: What percentage of management is from underrepresented populations? (This includes women, minority/previously excluded populations, people with disabilities and/or people living in low-income communities.)
  • Environment: Does your company monitor and record its universal waste production?
  • Customers: How do you verify that your product improves the impact of your client organizations?

Corporations must obtain a score of at least 80 out of 200 points to achieve certification. Companies are also encouraged to use the B Impact Assessment as a tool to track and identify improvement opportunities over time, internally and against certified peers.

As part of the "transparency" component of B Corp Certification, B Impact Assessment reports are made available publicly through the B Corp Directory.

(2) Legal Requirement: Articles of Amendment

Once the company has completed its B Impact Assessment and established that it meets the required standards for social and environmental performance, the company must amend its articles to include a "benefit statement" setting out its commitment to a social mission (general or specific) and to all stakeholders.3

According to B Lab, the model language is intended to reflect the idea that B Corps, when deciding what is in the best interest of the corporation, must consider the broad impact of their decisions on a wide spectrum of stakeholders including but not limited to shareholders, employees, suppliers, creditors and consumers, as well as the government, the environment, and the community and society in which the corporation operates.

These amendments do not include restrictions on the type of business activity a corporation may engage in, which is unnecessary for B Corp Certification and should be avoided, as it may place directors and officers at increased risk of liability.

Corporations have one year from the time of certification to amend their articles, a process that generally requires shareholder approval and the filing of articles of amendment.

Recertification Requirements

Once certified, B Corps have an ongoing obligation to complete a recertification every three years or after a change of control or "go-public" transaction.

Is B Corp Certification Right for My Business?

Currently, there are over 8,400 B Corps certified worldwide across 97 countries and 162 industries, with 970 B Corps in Canada alone. B Corps range in size from small privately owned businesses to large multinational enterprises. The Certified B Corporation logo appears on a number of familiar brands – from fair trade coffee to clothing.

Having gained widespread international recognition in recent years, B Corp Certification has also faced a degree of scrutiny. The legitimacy of the certification process has been challenged, with the B Impact Assessment's reliance on self-reporting being noted as a potential flaw in the process. Some have even questioned whether the B Corp label is a form of greenwashing.4

As such, B Corp Certification should not necessarily be viewed as a definitive solution but rather as a potential element of a company's broader ESG strategy.

Whether B Corp Certification is right for your business will depend on a number of factors. Companies are encouraged to work with their legal counsel and other advisors to evaluate whether B Corp Certification might be the right fit.

Footnotes

1. Section 122(1)(a) of the Canadian Business Corporations Act, RSC 1985, c C-44 (the "CBCA"); Section 134(1)(a) of the Business Corporations Act (Ontario), RSO 1990, c B 16.

2. BCE Inc v. 1976 Debentureholders, 2008 SCC 69; Section 122(1.1) of the CBCA.

3. The prescribed language may vary depending on the corporation's jurisdiction of formation. Currently, B Lab prescribes the following language for an Ontario B Corp's articles:

"1. The purpose of the Company shall include, but is not in any way limited to or restricted by, the creation of a positive impact on society and the environment, taken as a whole, from the business and operations of the Company, which impact is material in view of the size and nature of the Company's business.

2. The Directors shall, when deciding what is in the best interests of the corporation, consider the short-term and the long-term interests of the corporation and the interests of the corporation's shareholders, employees, suppliers, creditors and consumers, as well as the government, the environment, and the community and society in which the corporation operates (the "Stakeholders"), to inform their decisions.

3. In discharging his or her duties, and in determining what is in the best interests of the corporation, each director shall consider all of the Stakeholders (defined above) but shall not be required to regard the interests of any particular Stakeholder as determinative.

4. Nothing in this Article express or implied, is intended to create or shall create or grant any right in or for any person other than a shareholder or any cause of action by or for any person other than a shareholder.

5. Notwithstanding the foregoing, any Director is entitled to rely upon the definition of "best interests" as set forth above in enforcing his or her rights hereunder, and under provincial law and such reliance shall not, absent another breach, be construed as a breach of a Director's fiduciary duty of care, even in the context of a change in control transaction where, as a result of weighing other Stakeholders' interests, a Director determines to accept an offer, between two competing offers, with a lower price per share."

4. Elizabeth Bennett, " As greenwashing soars, some people are questioning B Corp certification," BBC, February 6, 2024.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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